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    Bluemound Asset Management A Kirk Spano company

A Better Way…

Kirk SpanoAccording to Warren Buffett, the top 2 investing rules are…

Rule No. 1: Never lose money. 

Rule No. 2: Never forget rule No. 1.  

What we can take from those rules is that the most important aspect of financial planning is having an investment approach that protects you from large losses and still gives you an opportunity to make money over the long-term. Very few people actually have that.

My name is Kirk Spano and I founded Bluemound Asset Management, LLC in 2010 as a response to what I saw the financial industry doing to people. I am widely published, including on MarketWatch.com of the Wall Street Journal network. I have also appeared on television and radio. Take some time to learn for yourself how I have helped people a lot like you. 

What I can tell you in short is this: if the way you have been invested has subjected you to large risks and not given you the returns you hoped for — there is a better way.

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Middle Age

February 2009

Middle Age

Last week I was chugging away on an elliptical machine and wondering if reaching my 39th birthday the week earlier had officially put me into middle age or if I have one more year to reaching that particular age category. Judging from the 20-somethings chugging much faster than me, I am guessing it is at least possible I am at the front end of middle age, though I do not want to admit that out loud– writing it is hard enough. I hope if I work hard enough that maybe I can put off this middle age thing for awhile longer.

Too cope with my midlife awareness, it is not a crisis yet (when I show up in a Corvette, you will know I had the crisis), I gave in to my daughter and son, and got a puppy. She is a black Lab and Husky mix, and very cute at 9 weeks old. My kids named her Bella, even though I preferred Pokey. I am rationalizing that if I make it through the puppy stage unscathed, she might help me add about a decade to my life, as part of her description is “needs daily long walks and runs.”  If I can live up to the dog’s exercise program, exercise being something I have clearly struggled with this decade, the belly on me you have noticed (a few of you openly) being proof of my struggle, she will clearly have been a good addition to the family.

Ironically (or not) the American economy is clearly having a midlife awareness issue right now as well. While we are not sure it will reach crisis levels again, we are clearly afraid it might, and frankly on the verge of that happening in my estimation. Last week, to stave off the crisis, President Obama, Treasury Secretary Timothy Geithner and the U.S. Congress, from what I can tell, bought a puppy for the U.S. economy. While reading the 1800 page document that Congress finally passed is not on my agenda, the Financial Times thinks that there are at least some strong elements to the plan, although clearly with many unknowns, and certainly far from perfect (much like my puppy only being about 80% house broken after a week). 

Like a puppy, this stimulus package should grow. What I am coming away with is that this only part one of what will be a three or four part plan, that will certainly include a comprehensive infrastructure bill relatively soon. As the plans are implemented, they will obviously get more expensive, and cause inflationary pressures at some point in the future. 

Congress, Banks and TARP

I was watching the testimony to Congress of bank executives and two things jumped out at me.

One, many Congress people have no idea how the banking system and broader economy work.

Two, many upper level executives of large companies are clearly out of touch with the reality that 90% plus of the world population faces. 

Among the Congress people, and I know this is hard to understand, though I had hoped the people in charge of the government got it, the lack of understanding of how the TARP funds (the fall bank bailout money) are supposed to work is astounding. The TARP funds are not meant to be loaned back out to consumers. That money is there to shore up the balance sheets of banks to legally required statutory levels, so they can maintain their previous lending levels. 

As of now, large banks which have received government money are lending at roughly flat levels to the recent past and smaller banks which are in relatively good shape are also lending. The lack of lending being experienced is due to the mid-sized banks being in dire straits, and the disappearance of former lending entities, for example, mortgage companies and financing companies that got much of their capital from private equity firms, hedge funds, university endowments and pension funds.

The pain in the mid-sized banks is important to watch. Treasury Secretary Geithner implied that those banks might not receive much more help. The positves to not bailing out the mid-size banks are that inefficient banks will be forced to merge thus becoming stronger sooner, and that the government will not be adding to the monetary pressure on future inflation by printing money for the purpose of mid-size bank bailouts. The negatives are that lending will not loosen up for consumers quickly and that there will be another bump in unemployment as merged banks lay people off. In my opinion, despite the pain of letting mid-size banks fail, it is an essential process that will help the banking system in the long run, not to mention be fair to the smaller banks which have behaved relatively more responsibly. There might be quite an investment opportunity in small banks as a result.

Fat Pitches

(Mandatory name drop) Warren Buffet described investing like this once:

The stock market is a no-called-strike game. You don’t have to swing at everything–you can wait for your pitch. The problem when you’re a money manager is that your fans keep yelling, ‘Swing, you bum!’

While I have brought up the above notion before, generally in justifying why many of my clients have not been fully invested in what I considered expensive markets the past few years, it might be time to consider this: that our fat pitches are coming soon.

Here’s what we know right now. 

  • The stock market averages are down about 40% from the 2007 highs depending on which index you look at.  This might very well have let enough froth out of some very well run company’s stock prices to be attractive again. 
  • There is a lot of money creation right now and planned over the next few years, which is likely to cause asset price inflation.
  • Government stimulus around the globe will be focused on infrastructure, healthcare, energy, alternative energy and defense.
  • The baby boomers continue to age and continue to be the biggest drivers of the American economy, though their spending will change from traditional consumerism to healthcare driven.
  • The emerging markets still want to create better living standards in their countries and won’t be held back long by what are largely the problems of developed market’s financial systems, although financial recovery will be measured in years not quarters.

I am currently reading research and looking for investment opportunities that benefit from lower than justified valuations, government stimulus winners, anticipated inflation in the next decade, evolving baby boomer spending habits and the growth driver of emerging markets reigniting eventually. This will be our very simple theme over the next several years. 

So while I do still believe that a broader stagflation is likely in developed (middle age and mature) markets around the world, there will be some terrific investment opportunities for people who can shake off the cult of over-diversification that has destroyed many a portfolio this time around (versus under-diversification that many portfolios suffered from in the 20002002 market beatings). My anticipation is that we gradually reinvest over the next two or thre quarters (though we have been nibbling since around Thanksgiving 2008).

Brett Favre and the Economy

As most Packer fans know, the world does in fact revolve around Brett Favre.  Due to Brett’s 2009 retirement (just to clarify), I thought I would post some facts about one of the NFL’s all-time ten greatest players relationship to the economy:

  • In years where Brett Favre played for a Packer team that lost to the Dallas Cowboys in the NFC playoffs, the economy was pretty good.
  • In years where Brett Favre won in a Superbowl, the economy was really good.
  • In years where Brett Favre lost in a Superbowl, the economy was really good. 
  • In years where Brett Favre was the NFL MVP, the economy was really good. 
  • In years where a coach named Mike failed to call enough running plays on a Brett Favre playoff team in the playoffs, the economy was mediocre.
  • In years where Brett Favre retired then came back to play for a mediocre New York team rhyming with “gets” the stock market got slaughtered and the economy was very bad.

As you can clearly see, when Brett Favre is going good, the economy goes good. I know that is not very scientific, but it is as good as a number of Senators use for their financial understanding apparently. If Brett ever runs for Congress, I’ll be sure to vote for him, or if I don’t live in the state he runs in, I’ll at least throw him my moral support, as his throws kept up my morale for a long time with regard to the Packers.  Let’s hope his retirement (or his next season) goes well for the economy’s sake. Thanks for the great times Brett, we will miss you. Enjoy middle age and maybe get a puppy. 

It is clearly time for me to click submit.

Kirk Spano

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Tactical Asset Allocation

The best offense is a great defense.

Tactical Asset Allocation

Are you utilizing the appropriate defensive strategies for your portfolio?

Today’s economic and financial climate are extremely dangerous and could lead to a large, fast drop in asset prices. Do you have a strategy to get out of the way quickly should that happen? 

“Set it and forget it” methods of investing like mutual funds, do not usually work. So-called “guaranteed” products, like annuities, are expensive, often lock people into low returns forever and aren’t always as safe as advertised. 

Tactical Asset Allocation using some of America’s top financial minds can offer protection that sales driven investment approaches don’t. Call today to find out how a tactical investment strategy can protect your retirement nest-egg and secure your lifestyle.

Punch Card Stocks

Buffett MungerWarren Buffett has famously said that investing in only twenty stocks, represented by a punch card, could improve your financial welfare. That is the impetus behind my “Punch Card” Stock Portfolio. These are the roughly twenty companies that I believe belong in the long-term growth portion of your portfolio and mine. 

Read my columns on MarketWatch, on my websites and elsewhere to see how a slow-handed and well thought out approach to stock investing can control risk and be profitable long-term. Learn more here.

 

Time for a Change

Do you want greater peace, security and freedom to pursue the lifestyle and legacy you really desire?

Do you want to avoid large losses in the next financial crash?

Do you want to take advantage of market opportunities when available?

Are you willing to take a few steps to secure your best future?

If so, call me today: 855445-4321

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The first Friday of each month at 4pm Central. Open to the public.

My next call is on: October 3rd, 2014

To join, follow this link or call 262822-3677. No PIN needed.

Submit questions by email. Podcasts available.

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Kirk’s Recent Quarterly Letters

Freedom to Unite and Invest in Tomorrow

UpWhen I was a kid I dreamed about being an astronaut, a baseball player, a rock star and the President. As I hit my teen years and I hadn’t done much musically, I dropped the Mick Jagger aspirations and focused on baseball. By senior year of high school I knew that baseball was fun, but that I wasn’t an elite player so I had to drop the Robin Yount dream too. 

When I got to college, I focused on having a good time and taking courses that might help me when I grew up. For awhile I thought I’d be a lawyer, but a great uncle gave me some guidance and I decided against that career path. I graduated from college with a degree in economics and a second in political science with a law certificate tossed in. That’s not what I dreamed about as a kid, but it has proven to be a good direction for me. I got there by taking one step at a time and just not stopping.

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The Great Retrenching Continues…

Total DebtIn September of 2008 I had coffee with a group of executives from local manufacturers, it was just after the financial crash had started. One company president in the group — a particularly political sort — asked me how long the economic slowdown would last? I said “until the middle of the next decade sometime.” He laughed at me.

Fast forward to today. What we know now is that the economy still has not recovered in real terms and that it will be a few more years until it does. The United States is just about in the middle of a demographic depression that can not be fixed with legislation or easy money. We must wait until household formation and spending by the very large millennial/ echo boom generation ramps up. Last year was the first year since 2008 that we saw an uptick in the birth rate, so that is a positive, however, it is only a baby step.

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2014 Another Crossroads

S&P 5002013 proved to be a profitable year for investors. The S&P 500 rose 29% and set new record highs. Global balanced indexes, more representative of most people’s portfolios, also did very well by returning about 20% despite a tough year in China which lost 9%.

The high return of the stock market had an expected effect on people. Many investors started to chase returns and look to be more aggressive after years of being risk averse. The result was that 2013 saw the most money from retail investors flow into stocks since 2000. I discussed this in a November article on MarketWatch titled “How Bad Will New Investors Get Hit.”   

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Volatility, Opportunity and the Next Crisis

Secular Bulls and BearsOver the past several years, I have discussed the monumental demographic changes that not only America is dealing with, but also that Europe, China and Japan are dealing with. The cumulative impact of national and personal debts, de-leveraging from the bubbles of the 2000s and the four largest economies in the world having aging populations has created global demand destruction that is not likely to end soon.  

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